Crude oil prices declined on Monday as the U.S. dollar strengthened and concerns over potential interest rate hikes resurfaced.

Brent crude oil, against which Nigerian oil is priced, slipped marginally by 3 cents to settle at $85.21 per barrel following a modest 0.6% decline on Friday.

Similarly, U.S. West Texas Intermediate (WTI) crude oil saw a minimal decrease of 2 cents to close at $80.71 per barrel.

Market analysts pointed to the robust performance of the U.S. dollar, which gained ground after the release of positive Purchasing Managers’ Index (PMI) data on Friday.

Tony Sycamore, a markets analyst at IG in Sydney, noted, “The U.S. dollar has opened bid this morning and appears to have broken higher following better U.S. PMI data on Friday night and political concerns ahead of the French election.”

A stronger dollar typically makes dollar-denominated commodities like oil less attractive for holders of other currencies, putting downward pressure on prices.

Last week, however, both Brent and WTI crude contracts managed to gain approximately 3% each.

This was largely driven by increasing signs of demand recovery for oil products in the U.S., the world’s largest consumer of crude oil. Additionally, ongoing supply constraints enforced by OPEC+ further supported market sentiment.

According to ANZ analysts, U.S. crude inventories continued their decline while gasoline demand recorded a seventh consecutive weekly rise.

Moreover, jet fuel consumption has rebounded to levels last seen in 2019, indicating a robust recovery in travel-related fuel demand.

Speculative activity in the oil market has also been notable, with analysts from ING observing an increase in net-long positions in ICE Brent as traders adopt a more positive outlook heading into the summer months.

“We remain supportive towards the oil market with a deficit over the third quarter set to tighten the oil balance,” they stated.

Despite these bullish indicators, geopolitical tensions persisted, providing a floor for oil prices.

Escalating conflicts in the Middle East, including the Gaza crisis and increased drone attacks on Russian refineries by Ukrainian forces, continued to underpin market sentiment.

In South America, Ecuador’s state oil company Petroecuador declared force majeure on deliveries of Napo heavy crude for exports due to severe weather conditions.

Heavy rains led to the shutdown of a critical pipeline and oil wells, impacting production and exports.

Meanwhile, in the U.S., the number of operating oil rigs fell by three to 485 last week, marking the lowest count since January 2022, according to Baker Hughes’ weekly report.

Looking ahead, the interplay between the U.S. dollar’s strength, geopolitical developments, and economic indicators such as PMI data will likely dictate short-term oil price movements.

Investors and analysts remain vigilant for any shifts in these factors that could influence global oil market dynamics in the coming weeks.

Crude oil fell in early trading on Friday as concerns over sustained high interest rates in both Asia and the United States weighed on the outlook.

This trend is attributed to Japan’s increasing inflation, which is prompting expectations of imminent rate hikes by its central bank.

Brent crude edged declined by 11 cents to settle at $85.60 per barrel while the U.S. crude oil declined by 9 cents to $81.20 per barrel.

Recent data revealed that Japan’s core consumer prices rose by 2.5% in May compared to the same month last year. This increase marks a growth from the previous month, suggesting that the Bank of Japan is likely to raise interest rates in the upcoming months to curb inflation.

In the United States, data released on Thursday showed a decrease in the number of new unemployment claims for the week ending June 14, indicating continued strength in the job market.

This persistent robustness in employment raises the likelihood that the U.S. Federal Reserve will maintain higher interest rates for a longer period.

Higher interest rates typically have a dampening effect on economic activity, which can subsequently reduce oil demand.

The prospect of prolonged elevated interest rates in two major economies has therefore put downward pressure on crude oil prices.

Despite the downward trend, oil prices received some support from the latest figures from the Energy Information Administration (EIA).

The data showed a drawdown in U.S. crude inventories by 2.5 million barrels in the week ending June 14, bringing the total to 457.1 million barrels. This exceeded analysts’ expectations, who had predicted a 2.2 million-barrel reduction.

Also, gasoline inventories fell by 2.3 million barrels to 231.2 million barrels, contrary to forecasts that anticipated a 600,000-barrel increase.

“Gasoline finally came to life and posted its first strong report of the summer driving season,” remarked Bob Yawger, director of energy futures at Mizuho in New York, highlighting the surprising uptick in gasoline demand.

Nigeria’s oil output has taken a significant hit following the shutdown of the Nembe Creek oil field due to a major oil leak.

The Nembe Creek oil field, responsible for producing approximately 150,000 barrels of crude oil per day (bpd), was forced to cease operations on June 17, 2024.

The leak occurred on the Nembe Creek Trunk Line (NCTL), a critical pipeline that transports oil from the Nembe Creek oil field to the Bonny Oil Export Terminal.

The operator of the pipeline, Aiteo Eastern Exploration and Production Company, confirmed the leak and the subsequent shutdown in a statement released yesterday.

Aiteo reported that the leak was discovered during routine operations in the Nembe area of Bayelsa State, located in Nigeria’s oil-rich Delta region.

This region is notorious for environmental degradation due to decades of oil spills, which have severely impacted local agriculture and fishing industries.

Following the discovery of the leak, Aiteo activated its Oil Spill and Emergency Response Team and shut down all production from Oil Mining Lease (OML) 29 as a precautionary measure to prevent further environmental damage.

“While we regret the production losses and the potential environmental impact, our current priority is to expedite an efficient spill management process in line with regulatory standards and collaborate with all stakeholders to restore production and mitigate associated risks,” said Victor Okronkwo, Managing Director of Aiteo Eastern E&P.

The exact cause of the leak remains unknown. Aiteo emphasized that the shutdown was a precautionary step to contain the spill and minimize environmental harm.

The company has notified its joint venture partners and relevant regulatory bodies, including the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the National Oil Spill Detection and Response Agency (NOSDRA), about the incident.

This development comes as a setback for Nigeria, which holds Africa’s largest natural gas reserves and is a major oil producer.

The country’s oil sector has faced numerous challenges, including aging infrastructure, theft, and environmental issues, which have hindered its ability to maximize production and exports.

The Nembe Creek shutdown also highlights ongoing concerns about the safety and reliability of Nigeria’s oil infrastructure. The NCTL has been a frequent target of oil theft and sabotage, exacerbating the challenges of maintaining a steady oil output.

Energy analysts believe that the latest incident could impact Nigeria’s ability to meet its export commitments and exacerbate the country’s economic challenges.

The Nigerian government, under President Bola Tinubu, has been making efforts to attract investment into the energy sector to boost production and address infrastructure deficits.

“The government will hope this offers confidence not only in the quality of the Nigerian resource base, but also in the government’s pledge to improve ease of doing business,” said Clementine Wallop, director of sub-Saharan Africa at political risk consultancy Horizon Engage.

As Nigeria works to address the immediate spill and restore production, the broader implications for the country’s oil sector and its environmental impact remain to be seen.